Kraft Foods Group Inc. and H.J. Heinz Co. announced plans Wednesday to merge in a deal that would create the third-largest packaged food business in the U.S., as well as a major supplier of products to restaurants and foodservice companies.

The new entity will be called the Kraft Heinz Company, and will be co-headquartered in Chicago and Pittsburgh. It would be the fifth-largest packaged food company in the world, with $28 billion in annual revenue and eight brands worth $1 billion or more.

The deal also represents another massive acquisition for 3G Capital, the Brazilian private-equity firm that owns Heinz, as well as Restaurant Brands International, parent of both Burger King Corp. and Tim Hortons Inc. 3G has been reportedly eyeing other deals since its purchase of Tim Hortons last year, an acquisition that created the world’s third-largest restaurant company.

Heinz and Kraft are known more for their packaged foods businesses in retail, but both are major foodservice suppliers. Heinz Ketchup is the dominant brand in quick-service chains and other restaurants. Kraft sells Philadelphia Cream Cheese, Grey Poupon Mustard and A1 Steak Sauce, along with a large selection of hot and cold beverages, including Tang, Capri Sun and Maxwell House coffee.

Executives with the combined companies suggested the deal should enable the companies to use their new scale to generate additional revenue through their combined foodservice business.

The company will benefit from its scale and relationship across the foodservice sector.

The companies estimate that synergies created by the merger should enable them to save $1.5 billion in costs every year through increased scale, sharing best practices and cost reductions.

The deal should help Kraft expand its brands internationally. Kraft has seven brands with retail sales of $1 billion or more, and has near total penetration in the American market. The average consumer has 10 Kraft products in their home at any one time.

But, while noting that Kraft has 80-percent name recognition in 14 international markets, that an untapped opportunity.

Kraft was spun off from what is now called Mondelez International in 2012. That deal restricted Kraft’s ability to bring its brands to certain markets. Those restrictions are about to be lifted. Heinz already has infrastructure in many markets where Kraft has brand awareness, which should enable Kraft’s brands to expand quickly in places like Australia, China, Italy, Brazil and Indonesia.
Source: nrn.com, 3-25-2015